A toy manufacturer accumulates inventories because of the uncertainty of the demand for their product at Christmas and the desire not to lose any potential sales. This is an example of the motive for holding inventories.
A)production smoothing
B)inventories as a factor of production
C)stock-out avoidance
D)work in progress

Question

Quizplus · Accepted Answer

The motive for holding inventories in this scenario is stock-out avoidance, which means the manufacturer wants to ensure they have enough inventory to meet demand and avoid potential lost sales. Production smoothing involves maintaining a consistent level of production over a given period, work in progress refers to products that are in the process of being manufactured, and inventories as a factor of production refers to the role of inventory in the production process.

A Toy Manufacturer Accumulates Inventories Because of the Uncertainty of the Demand